If you are like most Americans, your patience with the COVID-19 pandemic and all the accompanying restrictions, lockdowns and rules is probably wearing thin. The good news is that many states are reopening, mask mandates are being dropped in some places, people are traveling, and life in many places is returning to normal, albeit a very slow return.
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Some industries benefited big time from the evacuation from businesses and the workplace to home, but many suffered terribly. The restaurant industry was one of the hardest hit. Fortunately, the tide is turning. A new Baird report shows that almost all the metrics in the restaurant industry are turning around:
We polled executives at private restaurant chains covering roughly $15 billion in annualized sales about their same-store sales for last week. Respondents indicated comps in the week ended on or near April 11 were +76% (against low year-ago comparisons), above +69% in the first week of April. The week-to-week change appeared to stem mainly from a swing in the impacts from Easter timing (April 4 this year vs. April 12 last year), which was a net positive in the most recent week after being a net negative the prior week (particularly for limited service concepts, many of which are closed on Easter day).
This improvement should continue as the vaccine rollout increases and consumers start returning to their favorite spots. Add in the fact that many restaurant chains had adapted to focus on takeout, delivery and other pandemic-predicated operating arrangements, so having a return of customers to the locations to dine-in can only be a bigger positive.
We screened the Baird research universe for stocks rated Overweight. These four look like great ideas that could really take off as summer travel and vacations boost business. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Chipotle Mexican Grill
The remains a favorite destination for those looking to eat out, and the stock is a top pick across Wall Street. Chipotle Mexican Grill Inc. (NYSE: CMG) operates more than 2,400 fast-casual Mexican restaurants offering freshly made burritos, tacos, burrito bowls and salads.
It is 100% company-operated and runs average unit volumes much higher than peers. The company has established a strong foundation with a focus on operations, supply chain and marketing over the past two years. The digital transformation brought about by the pandemic allows Chipotle to leverage its digital ecosystem, the strong mobile app, a rapidly growing loyalty program with over 20 million members in just two years, and third-party delivery and digital drive-thrus continue to drive top-line growth and improving margins.
The Baird price target for the shares is $1,750, while the Wall Street consensus target is $1,661.08. Monday’s closing price for Chipotle Mexican Grill stock was $1,550.01 a share.
Darden Restaurants
The return to sit-down dining in restaurant locations will be massive for this industry leader. Darden Restaurants Inc. (NYSE: DRI) owns and operates full-service restaurants in the United States and Canada.
As of May 31, 2020, the company owned and operated approximately 1,804 restaurants, which included 868 under the Olive Garden, 522 under the LongHorn Steakhouse, 165 under the Cheddar’s Scratch Kitchen, 81 under the Yard House, 60 under the Capital Grille, 44 under the Seasons 52, 41 under the Bahama Breeze and 23 under the Eddie V’s Prime Seafood brands.
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